Capital goods under Modvat include integral plant equipment, furnace refractories, and handling racks used in manufacturing.

Electrical wires and cables used inside the factory to carry power from the distribution board to machinery were treated as part of the plant and qualified as capital goods, because the supply system to the machine could not be artificially split. Ceramic refractories used to maintain furnace temperature for manufacture were regarded as component parts of the furnace and fell within the relevant explanation to Rule 57Q. G racks used for shifting, storing and packing glass products between manufacturing stages were treated as equipment essential to production and marketability. On that basis, all three items were held eligible for Modvat credit as capital goods under Rule 57Q.

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Issues: Whether electrical wires and cables, ceramic refractories, and G racks were eligible for Modvat credit as capital goods under Rule 57Q.

Analysis: Electrical wires and cables used within the factory to conduct electricity from the distribution board to the machinery were treated as part of the plant and as capital goods, following the principle that the supply system to the machine cannot be artificially split. Ceramic refractories used to maintain furnace temperature for manufacture were held to be component parts of the furnace and therefore within Clause (b) of the Explanation to Rule 57Q. G racks used for shifting and storing intermediate and finished glass products between stages of manufacture and for packing were held to be equipment essential to the production process and to rendering the goods marketable, and no valid distinction was shown from other handling equipment already accepted as capital goods.

Conclusion: All three items qualified as capital goods and Modvat credit was admissible.

Final Conclusion: The disallowance of credit was unsustainable and the assessee was entitled to relief.

Ratio Decidendi: Goods integrally connected with the manufacturing process, including equipment that functions as part of the plant or is essential for production, processing, handling, or rendering the goods marketable, qualify as capital goods under Rule 57Q.

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